Company Announcement No 2008-02 6 March 2008
Publication of Annual Report 2007 12:40am CET
Today, the Board of Directors of William Demant Holding A/S adopted the
Company's Annual Report 2007. This announcement includes a summary of the
annual report and an outline of a number of planned product introductions.
Realised revenues and operating profits (EBIT) match the most recently
announced forecasts.
The highlights of the annual report are summarised below:
In 2007, the Group generated revenue growth of 11% in local currencies, or
DKK 5,488 million. Revenues were adversely impacted by exchange rates by just
under 3%.
Operating profits (EBIT) amounted to DKK 1,268 million, however DKK 1,398
million before special items, including non-recurring costs of DKK 140 million
relating to a US patent case. The profit margin is 25.5% before special items.
As a result of the weakening of the US dollar in particular, operating
profits for 2007 are negatively impacted by exchange rates in the amount of DKK
40 million.
In 2008, the Group forecasts revenue growth of 7-10% in local currencies in a
market which is expected to grow by 3-5%. After recognition of a negative
exchange rate effect of 3%, the Group expects revenues in 2008 in the amount of
DKK 5,700-5,850 million.
In 2008, we expect operating profits (EBIT) of DKK 1,400-1,500 million,
including a negative exchange rate effect of approximately DKK 60 million. The
all-year effect on operating profits of the most recent period's unfavourable
exchange rate fluctuations can thus be calculated at about DKK 100 million
after recognition of the adverse exchange rate effect of approximately DKK 40
million in 2007.
In 2008, the Group intends to continue to buy back shares in the amount of
DKK 900 million.
With a rise in overall unit sales of Group-manufactured hearing aids in 2007 of
14%, the Group continues to capture market shares, even though during this
period, unit growth in the global hearing aid market is estimated to have
exceeded the Company's long-term expectations of 2-4% volume growth. However,
in 2007 market growth was positively affected by considerable demand by the
British healthcare system (NHS) and the US Veterans Affairs (VA). If we ignore
the growth generated by the NHS and VA, 2007 market growth was in line with the
Company's long-term growth expectations.
2007 was very much dominated by the introduction of the high-end product Oticon
Epoq, offering the hearing impaired the world's first fully wireless hearing
aid solution with significantly improved sound processing. Add to this, the
possibility of connecting to Bluetooth applications, for instance the user's
mobile phone. Epoq is receiving extremely positive feedback from both hearing
care professionals and end-users, who, in particular, mention Epoq's excellent
sound reproduction and the recreation of the user's sense of space and ability
to localise sources of sound. As mentioned previously, Epoq sales fell short of
the plans made in the second half-year, as in many countries sales did not pick
up until early autumn, despite the fact that the product was released for sale
in May/June. At the same time, enthusiasm about the possibility of Bluetooth
connectivity meant that for a while the customers' focus was diverted away from
Epoq's obvious audiological benefits. Towards the end of 2007, however, our
marketing effort and current dialogue with the customers were redirected to
focus much more on Epoq's audiological features. The development towards the
end of 2007 and in the past part of 2008 also points toward a somewhat improved
sales momentum. The Group continues to have great expectations of Epoq sales in
2008 and
beyond.
For Oticon Delta, which was released for sale approximately two years ago, 2007
was another good year. Despite increasing competition in the segment for open
and cosmetically attractive mini-instruments, Delta succeeded in maintaining
its position as a reference product in the fastest growing segment of the
hearing aid industry.
Special items
The Group's income statement for 2007 is impacted by a number of non-recurring
items; the most important item being costs defrayed in connection with a US
patent case, please see Company Announcement no. 2008-01. According to a jury
decision in January 2008, the Group has infringed two patents owned by the
Energy Transportation Group (ETG), which was awarded damages of DKK 80 million.
In addition, we expect legal fees to total DKK 60 million. The aggregate of DKK
140 million was included in consolidated administrative expenses in 2007, of
which provisions in the amount of DKK 110 million have been made for payment of
damages and legal costs, including the cost of the expected appeal case.
William Demant Holding maintains that the Company has not
infringed ETG's patents. The final decision in the appeal case is not expected
until 2009. If William Demant Holding wins the appeal case, the provision for
damages will be reversed.
In connection with the restructuring of its production capacity, the Group has
sold a property in Brisbane, Australia. The sale of the Australian property
means that in 2007 the Group has realised a gain of DKK 59 million, which is
included in the gross profit. The restructuring of the Group's production
facilities also resulted in non-recurring costs of DKK 50 million on the
transfer of production from Australia and Scotland to Poland, where in 2007 we
established a production facility in Mierzyn. These non-recurring costs will
also be included in the consolidated gross profit.
In overall terms, reported consolidated operating profits (EBIT) in the amount
of DKK 1,268 million were adversely impacted in 2007 by special items of
approximately DKK 130 million. If, however, we ignore these non-recurring
costs, the Group achieved operating profits (EBIT) in 2007 of DKK 1,398
million.
On page 15 in Annual Report 2007, there is a table showing the special items
and their effect on earnings. The table is also shown at the end of this
announcement.
Outlook for the future
2008 will be another year of growth for the Group. For 2008, we anticipate
growth in revenues of 7-10% in terms of local currencies in a market whose rate
of growth we estimate at 3-5%. Based on average exchange rates for January
2008, the negative exchange rate effect on consolidated revenues in 2008 is
estimated at approximately 3%. In this light, consolidated revenues for 2008
are forecast at a level of DKK 5,700-5,850 million.
For 2008, we expect that especially Oticon Epoq will continue to contribute to
corporate growth.
In the first half of 2008, we are planning to introduce a broad palette of
products in the mid-priced segment, including the product families Oticon Vigo
and Oticon Vigo Pro as well as new Oticon Epoq variants led by Epoq V, which
will be positioned just below the two existing Epoq products (Epoq XW and Epoq
W). The Group's planned product introductions in spring 2008 appear from a
separate Company announcement to be published just after the Annual Report
2007. Both Oticon and Bernafon will introduce new products in the second
half-year. The many new product introductions will be the basis for growth in
2008 and beyond.
The emerging effects of the restructuring of production carried out in 2007 in
combination with our current utilisation of economies of scale will positively
impact the consolidated gross profit ratio in 2008 and beyond. This margin
impact is however expected to be offset - in full or in part - by a steady
increase in sales to international retail chains.
For 2008, we expect a continuous increase in the Group's development costs,
which are primarily paid in Danish kroner. As development costs are expected to
grow at the same level as revenues in terms of local currencies, the reported
increase in development costs will exceed reported sales growth.
Particularly in the fourth quarter of 2007, exchange rate trends had an adverse
effect on consolidated profits. For 2007 as a whole, the earnings-related
exchange rate effect on operating profits (EBIT) was negative by approximately
DKK 40 million. Based on average exchange rates for January 2008, we estimate a
further negative effect to the tune of DKK 60 million for 2008 as a whole. As
usual, the estimated figure includes anticipated gains and losses on forward
exchange contracts. The Group generally estimates operating profits (EBIT) for
2008 at DKK 1,400-1,500 million.
The Group's effective tax rate for 2008 is expected to be 24-25%, which is
slightly above the 2007 level.
Total investments in property, plant and equipment are estimated at a level of
DKK 200-240
million for 2008.
We expect to buy back shares at an amount of DKK 900 million in 2008.
Major proposals from the Board for adoption by the annual general meeting
According to the Articles of Association, Directors elected by the general
meeting are elected for one-year terms. At the annual general meeting in 2008,
Mr Lars Nørby Johansen, Mr Michael Pram Rasmussen and Mr Peter Foss will all
accept re-election, whereas Mr Niels Boserup and Mr Nils Smedegaard Andersen
will not accept re-election. The Board of Directors proposes that Mr Niels B.
Christiansen, Vice CEO of Danfoss, be elected to the Board.
In line with general trends among Danish listed companies, the Board of
Directors proposes that the Company should employ only one auditing firm rather
than two. The Board of Directors proposes that Deloitte Statsautoriseret
Revisionsaktieselskab be re-elected.
Furthermore, it is proposed that the Company's share capital be reduced by
redemption of the Company's holding of treasury shares of no less than the
nominal sum of DKK 1,800,000 and no more than the nominal sum of DKK 2,500,000.
The general meeting will be informed of the final, nominal reduction sum. The
holding of treasury shares is acquired as part of the Company's share buy-back
programme. At 6 March 2008, the Company's holding of treasury shares is
1,819,520.
Lars Nørby Johansen Niels Jacobsen
Chairman President & CEO
The full Annual Report 2007 for William Demant Holding A/S totalling 70 pages
will be forwarded to OMX Nordic Exchange Copenhagen immediately after this
announcement, after which the Company will publish an announcement relating to
a number of important product introductions.
• • • • • • •
Further information:
Phone +45 39 17 71 00
www.demant.com
Contact person: Other contact persons:
Niels Jacobsen, President & CEO Stefan Ingildsen, Vice President, Finance & IR
Søren B. Andersson, IR Officer
2003 2004 2005 2006 2007 Development
2006-2007
Key figures, DKK million
Revenue 3,677 4,121 4,523 5,085 5,488 7.9%
Gross profit 2,521 2,859 3,133 3,575 3,971 11.1%
Operating profit (EBIT) 856 1,004 1,103 1,271 1,268 -0.2%
Net financials -28 -39 -37 -61 -97 57.8%
Profit before tax 827 965 1,066 1,209 1,171 -3.2%
Profit for the year 618 717 791 901 894 -0.7%
Total assets 2,015 2,441 2,893 3,135 3,726 18.9%
Equity 522 646 756 671 435 -35.2%
Cash flows from operating activities (CFFO) 754 720 892 964 848 -12.0%
Financial ratios
Gross profit ratio 68.6% 69.4% 69.3% 70.3% 72.4% -
Profit margin 23.3% 24.4% 24.4% 25.0% 23.1% -
Earnings per share (EPS), DKK 8.8 10.7 12.2 14.4 14.8 2.8%
Return on equity 139.8% 134.2% 106.7% 114.0% 169.0% -
Special items and effect on earnings 2006 2007 Change
Reported gross profit 3,575 3,971 11.1%
Employee share costs 10
Gain from sale of property -59
Production restructuring costs (estimated) 50
Gross profit before special items 3,585 3,962 10.5%
Reported capacity costs etc. -2,304 -2,704
Employee share costs 24
Due diligence costs 25
Cost of US patent case 140
EBIT before special items 1,330 1,398 5.1%
Reported net financials -61 -97
Profit before tax before special items 1,269 1,301 2.5%
Reported tax for the year -308 -276
Tax effect -15 -33
Profit for the year before special items 945 992 5.0%
Reported profit after tax 901 894 -0.8%
Earnings per share (EPS) before special items 15.1 16.4 8.6%
Reported earnings per share (EPS) 14.4 14.8 2.8%
